Succession planning sometimes requires business owners to make hard decisions. If something were to happen to them and they became permanently unable to perform their duties, should they tell the family to sell the business? Should they have the family hire a replacement CEO as soon as possible? Are the existing management players sufficient to perpetuate the enterprise, or aren’t they? What are the consequences of that?
If the business should be sold, who should run it until a buyer is found? Quite often, that is management since family members who are not involved in the management of the business are not capable. Sometimes you may encounter a client who says, “I want to preserve the business for my kids.” But their kid is 10 years old; that may not be appropriate. The unfortunate truth is when clients leave, the key employees leave. They love the owner and the business, but they also need a viable business for them to survive, and their loyalty will last as long as the paychecks.
One of the alternatives to succession planning is to sell the business. You have to start early to prepare your clients to get ready to sell their business. A confidential valuation is one way to approach this. Oftentimes, it is done through the attorney because the attorney can obtain the valuation and engage the evaluation expert and keep it confidential so that if, in fact, the evaluation comes out inappropriate, too low or otherwise, you can go ahead and not use that valuation to get a second opinion.
Attorneys are usually engaged with valuation experts to determine a value and ensure it is in line with the desired sale price. Can it be sold? Can the value be realized? If you evaluate that the family members cannot perpetuate the business, then the business should be sold. Strengths and weaknesses of the business will be pointed out by a good valuation and allow the owner to correct or capitalize on those. So, we like to do it as early in the succession planning process as possible.
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